BAC is a retailer that sells sound systems. The company is planning its cash needs for the month of January 2017. in the past, bac has had to borrow money during the post-christmas season to offset a significant decline in sales. the following information has been assembled to assist in preparing a cash flow forecast for January.
a. january 2017 forecasted income statement:
Gross Profit $50,000
Variable Selling Expenses 10,000
Fixed Administrative Expenses 20,000 $30,000
Net Income $20,000
b. sales are 10% for cash and 90% on credit
c. credit sales are collected over a three month period with 40% collected in the month of sale, 30% in the following month, and 20% in the second month following sale. 10% of credit sales are never collected. November 2016 sales totaled $300,000 and december sales totaled $500,000.
d. 40% of a months inventory purchases are paid for in the same month. the remaining 60% are paid in the following month. accounts payable relate solely to inventory purchases. At December 31, accounts payable totaled $400,000.
e. the company maintains its ending inventory levels at 60% of the cost of the merchandise to be sold in the following month. the merchandise inventory at december 31, 2016 was $90,000. February 2017 sales are budgeted at $150,000. Gross profit percentage is expected to remain unchanged.
f. the company pays $10,000 monthly cash dividends to shareholders.
g. the cash balance at december 31, 2016 was $30,000. the company must maintain a cash balance of at least this amount at the end of each month.
h. the company can borrow on its operating loan in increments of $10,000 at the beginning of each month, up to a total loan balance of $500,000. the interest rate on this loan is 1% per month, payable on the first day of the next month. there is no operating loan at December 31, 2016.
Required. Prepare a cash flow forecast for BAC for the month of January 2017. Include appropriate supporting schedules.
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